NECESSITY KNOWS NO LAW

My colleague, Mr Peter Reilly, CPA, wondered up to what mischief Tax Court, unwatched, would get while I was sunning myself in tropical climes. Today’s ration of opinions and designated hitters shows little mischief, but two of last Thursday’s full-dress T. C.s deal with a couple protester threads (hi, Judge Holmes) that bear watching.

Stan and Zmira want to toss all the Tax Court judges. They’re all conflicted out, because Section 7443(f), which permits the President to toss them, is an unconstitutional power grab that subjects the judiciary to the same executive will that enforces the IRC, thus violating separation of powers.

That doesn’t fly.

“The Rule of Necessity has been expressed through a maxim of law that where all are disqualified, none are disqualified. We conclude that under the Rule of Necessity we may properly act on petitioners’ motion. There is indeed a necessity that we do so. Every case before us involves the issue that petitioners here present, and either we must suspend our activity in every case (thereby effectively granting petitioners’ motion), or we must go about our business (thereby effectively denying it). We cannot avoid the question by the recusal of one Judge in the instant case.” 148 T. C. 2, at p. 33 (citation omitted).

And Tax Court is a court, not an executive agency, so the President’s removal power is no greater than in all Article I courts. Tax Court does not exercise the judicial power of the USA in respect of private rights (nongovernmental), only public ones (taxes), so it isn’t an Article III court.

I’ll spare you Judge Colvin’s law review article, wherein he quotes his own case.

“Tax Court Judges have immunity from liability for damages for acts committed within their judicial jurisdiction to the same extent as Article III judges and State court judges instead of the more narrow form of immunity provided for executive branch officials. Chisum v. Colvin, 276 F. Supp. 2d 1, 3 (D.D.C. 2003)….” 148 T. C. 2, at p. 27.

Jimmy Chisum claimed Judge Colvin was a racketeer when he nailed one of Jimmy’s dodger clients, thus putting Jimmy out of business.

But Doug and Lisa Mae have another card to play. They claim the 30% Section 6662A(c) and old Section 6664(d)(2) (now (d)(3)) undisclosed dodge chops are excessive fines and penalties, prohibited by the Eighth Amendment.

If this sounds familiar, Doug and Lisa Mae were fighting a DADS case, apparently one of Mr. Rogers’ well-blogged maneuvers. See my blogpost “I Owe Too Much Money – Part Deux,” 1/6/17, wherein the ol’ dodgemeister hisself tried this one on.

And it tanks for the same reason.

The punishment (or deterrent) must fit the offense. Tax shelters are a notorious evil, diminishing respect for the self-assessment system, which underlies our entire income tax structure.

“In many cases, tax shelters represent transactions generating tax losses without corresponding economic losses to investors. These tax losses can be carried back or forward to shield income from taxation over several years. Ironically, the facts of this case illustrate this concept very well. Petitioners entered into a listed transaction in 2005 and attempted to partially offset their income with fictitious losses over a span of five years, from 2003 to 2007. As a result, the potential harm to the fisc was spread over several years. Calculation of the section 6662A penalty is designed to quantify this harm by taking into account the full tax benefit a taxpayer may have obtained as a result of engaging in a listed or reportable transaction.” 148 T. C. 3, at pp. 13-14.

And required disclosure, with a substantial chop for those trying an under-the-radar flight plan, deters.

An author, teacher, advocate and trusted advisor, Lew Taishoff is a New York City-based attorney with 51 years of experience in corporate and individual tax and real estate matters. He is an Enrolled Agent, examined and admitted to practice before the Internal Revenue Service, and admitted to practice before the United States ... Continue reading →